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Essentials of Monetary Policy

European Central Bank turns less dovish

March 6, 2025
Mirza Shaheryar Baig
Foreign Exchange Strategist

According to the European Central Bank (ECB)

  • The ECB lowered its policy interest rate from 2.75% to 2.50%, in line with expectations.
  • The accompanying statement emphasized progress on inflation, but staff conceded that inflation would likely be higher than previously thought. Weaker export growth pushed staff to revise their growth forecasts lower, emphasizing the continued weakness in the bloc
  • Overall, the ECB struck a more hawkish tone, noting that the policy rate was becoming meaningfully less restrictive.

Implications

The March ECB meeting brought a clear shift in tone regarding how governing council views the current stance of monetary policy. With policy now meaningfully less restrictive, European central bankers will likely take a step back and opt for a more gradual pace of easing going forward. We continue to see the ECB lowering its policy rate an additional 50 basis points by year-end, but the pace may be adjusted to include a pause at the April meeting. While near-term growth forecasts were revised lower, these might have been done without consideration for a potential unshackling of fiscal policy in the bloc, all of which could see economic activity rebound.

2025 Schedule of Central Bank Meetings

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